Posted by: Josh Lehner | June 11, 2019

We are Hiring an Economist, Come Work with Us!

Our office is currently hiring an economist. This newly created position will work with us on all of the research projects and various forecasts our office produces. This ranges from jobs and population to business taxes and crime rates.

We are looking for a new colleague who is as interested in data and research and is as curious about improving both as we are. Do not be scared off by any lack of forecasting experience, but do apply if you have that! Overall we want to work with you if you have analytical skills and are curious to learn how our office approaches research projects, engages stakeholders, and communicates our findings to policymakers and general audiences alike.

This position is designed to be a stepping stone to a senior economist or research position or to gain real, hands-on experience before graduate or professional school.

See here for the official job posting and to apply

Details

Location: Salem (with some telecommute options once you are up to speed)

Pay: $54,800 – $77,000 annually

Deadline to Apply: June 29, 2019

If you have any questions or wish to discuss the position in more detail, please do not hesitate to reach out.

Posted by: Josh Lehner | June 4, 2019

Eugene-Springfield Economic and Housing Outlook

This morning I am part of the Springfield Chamber of Commerce’s State of Business Breakfast. Also presenting are Caroline Cummings of Oregon RAIN and Mark Gregory of Oregon SBDC. Should be a great event. My presentation focuses on the statewide economic outlook but I have incorporated some local material as well. What follows is some Lane County specific information.

Like Oregon overall, job growth in Lane County has slowed in recent years as the regional economy begins to approach full employment. However, as we have discussed before, Eugene-Springfield underwent major structural changes during the Great Recession. In particular the manufacturing losses of the RV industry and the chip plant still weigh on economic data today.

The university is a stabilizing force employment-wise and a source of growth overall with rising enrollments increasing consumer spending and spurring new construction.

All of that said, it’s really every other sector driving growth in recent years. These gains are broad based. The regional economy is at an historic high for jobs and the previous jobs gap — difference between the number of jobs and growth in the potential labor force — is effectively closed.

Importantly, economic growth in recent years has finally translated into real income gains. Local drivers of growth mirror statewide patterns. These gains are all about the labor market. More Lane County residents are working, for more hours, and for higher pay. Local inflation-adjusted incomes are back to where they were in the late 1990s and at the height of mid-2000s expansion. When the 2018 Census data is released this fall, I suspect Lane will have reached an all-time high on incomes as well.

Looking forward, the Lane County economy has never been more diversified. Keep in mind that this measure compares the local mix of industries to the nationwide patterns. As such, when a line moves sideways, it means the local economy is diversifying at the same pace as the nation.

Lane County is home to a very high concentration of timber-related firms, in addition to the university, plus a thriving beverage manufacturing sector (mostly breweries). These all stand out when looking at the local industrial structure.

On the flip side, Lane County has relatively low concentrations in finance (Oregon is not a financial hub), construction (slower population growth, but as we will see in a minute, still not enough construction), and professional and technical services (high-wage, white collar jobs).

For more on industrial diversification and the outlook, please see our previous work. But the main point being that a more diverse economy is better able to withstand different types of recessions. Having one key industry is great when that industry is booming (Timber in the 1950-70s, e.g.) but a region suffers considerably when that sector has fallen on hard times. If the proverbial eggs are spread across more baskets, it means when one basket goes down, the rest are better able to withstand the loss and recover.

Lastly, there are two ways to diversify. A region can add more jobs in industries that did not have a large local presence. Or a region can lose jobs in a sector they specialize in. Both types occur and Oregon’s more diversified economy today is not just due to new job growth. While Lane County still has 10x the concentration in timber-related jobs compared to the nation, it used to be 20x the concentration a generation or two ago. As such, the decline of the timber industry and job polarization overall have made Oregon and Lane County’s economy more like the U.S.

The keys to longer-run growth are demographics and housing. The Eugene-Springfield MSA is expected to continue to grow, but at a somewhat slower pace in the years ahead. The regional economy will face the same demographic headwind the rest of urban Oregon, and the Willamette Valley faces. Working-age population growth will be positive, but slower than total population growth as the Baby Boomer retirements weigh on the local workforce numbers. As discussed before, there are some discrepancies between local demographic forecasts, suggesting Lane may have more demographic upside risk than most.

All of that said, the region will still need to build significantly more housing in order to accommodate gains seen in recent years and their future neighbors in the years to come. Taking Portland State’s population forecast and turning it into household projections reveals Lane County needs to build around 1,400 units per year in the decade ahead, even with a moderate recession (solid lines). While this level of new construction, or more, was seen basically every year throughout the 1990s, the last time Lane permitted this many units was 2006. And the past decade hasn’t been close. More new construction is a must.

Today Lane County, like Oregon overall, is building 1 new housing unit for every 3 new residents. Historically we built 1 new unit for every 2 new residents in Oregon. At some point, something has to give here. So far the answer to that something is affordability. The concern is that affordability could put Oregon’s comparative advantage at risk, or our ability to attract and retain working-age households. 

For more information on Lane County’s economy, see the great work that Employment’s regional economist Brian Rooney does.

Posted by: Josh Lehner | May 29, 2019

Oregon Births and Deaths, Part 3

Previously in Part 1 we looked at the big picture for Oregon births and deaths and across counties. In Part 2 we explored the declining birthrate. Today in Part 3 we will look at the rise in Oregon deaths, which are expected to outnumber births by the middle of next decade. As with the low birthrates, the rising deaths are a nationwide trend and not necessarily unique to Oregon.

An aging population accounts for much of the increase in the number of deaths. However in recent years, deaths are rising a bit faster than expected. While there are myriad causes of death, and I’m certainly no doctor or coroner, there is at least one clear trend pushing back on medical advancements and it ties in with the economic literature. But first let’s start with a high level look. After falling for decades, mortality rates are no longer declining for the working-age population in the past 10 or 15 years. Life expectancy is slowing down or even stagnating as a result.

It is possible that we have reached the limits of medical care and are at a lower bound for mortality. It could be other causes of death that are harder to treat with medicine pushing back on mortality improvements. And we do see some of this. In particular, as vehicle miles traveled rebounds in recent years, so too have driving-related deaths. That said, health-related deaths are also a mixed bag. There are ongoing improvements in cancer-related deaths, signaling medical advancements are not tapped out. But offsetting these gains are increases in deaths due to high blood pressure and diabetes, which may be tied to rising obesity rates.

All of that said, the lion’s share of increasing death rates is even darker. Nationwide and here in Oregon we are experiencing a rise in the so-called “deaths of despair,” or those due to alcohol, drug overdoses, and suicide. This is a phrase coined by Princeton economists Anne Case and Angus Deaton. I cannot do this research justice here, so please read their paper. But I can show you the increases in the past decade or two. Today, depending upon the age group, such deaths account for 10-50% of all deaths in Oregon, essentially double the share from 15 years ago.

Note: Poisonings are largely drug overdoses and the rise is tied to the opioid crisis. Chronic liver disease is largely about heavy drinking. The research overall focuses on white, non-Hispanics as the rise in these deaths is most pronounced among this demographic, particularly over the past 20 years. In recent years, these increases are more widespread across racial and ethnic groups.

It is clear that the rise in “deaths of despair” are not confined to the Rust Belt or Appalachia or wherever most of the media reports have focused in recent years. They are more acute there, but the rise is seen nationwide. Here in Oregon, unfortunately, we see higher rates of death due to heavy drinking and suicide. These issues are not only bigger here, they are also rising over time. In the big picture, both Oregon and Washington have higher rates of the “deaths of despair” but the increases over time have been slower than in most other states.

The big reason for that is the stabilization seen in drug overdoses in recent years. To be sure, Oregon sees more deaths today than 20 years ago, but these types of deaths are no longer rising like elsewhere in the nation. I think this highlights a clear policy and public health win here in Oregon. You can see this on the Opioid Data Dashboard from the Oregon Health Authority. After Oregon created the prescription drug monitoring program, the opioid prescription rate has dropped by 25-30 percent and pharmaceutical opioid-related deaths are down too. That said, while the pharmaceutical ones are down, we are seeing a rise in synthetic opioid deaths due to fentanyl and the like, which is a growing problem everywhere. Additionally, higher usage of naloxone is able to save those who overdose and while findings are somewhat mixed, legalized marijuana may also help with opioid and drug-related addictions and prevent subsequent deaths.

Now, while we see some clear improvements in the past decade here in Oregon among the prime working-age population, these seem to be confined to just a couple age groups, unfortunately. If we look at total “deaths of despair” by age group in Oregon compared to the nation, we see very similar trends for teenagers and for the age cohorts 55 and older (not all shown here). These charts also show the increases among our communities of color in recent years.

Now, the reason our office began digging into this work was not just due to the rising number of deaths impacting the population forecast, nor the landmark Case and Deaton paper, but as part of the big picture issue of labor supply. As we wrote a couple years ago, we have seen a rise in the number of Oregonians saying they are not looking for work due to illness or disability. Given there was not a corresponding rise in the actual number Social Security Disability payments, it is an open question just what is going on here. How much of it is a genuine public health crisis, in part due opioids and the factors leading to “deaths of despair”? Clearly these issues are impacting the population even if they are unlikely the leading cause of lower labor force participation rates.

Finally, this research is still very new and ongoing. Case and Deaton did a great job of pioneering the work, laying out their data and methodologies and even advancing possible hypotheses as to why these increases are occurring. However, what is clear from the work, including a number of recent papers from other authors, is these deaths are not directly tied to current economic conditions. This is the biggest misconception about this research. Someone does not lose his job today and die tomorrow of liver disease. It takes a long period of heavy drinking for your liver to fail. The initial factor behind these behaviors or cause of depression may be economic-related in some cases, but these tragic outcomes are years in the making.

As such, Case and Deaton stress a long-term, cumulative impact. They highlight a few possible factors, but, overall no clear consensus has been reached in determining just now much each may or may not play a role. The factors listed include the break down of social institutions including marriage, manufacturing, unions, religion, in addition to overall economic conditions and stress. In a presentation with the Legislature a few years ago, former Representative Barnhart, himself a former psychologist, noted that these outcomes may stem from depression. And the late economist Alan Krueger, who recently took his life, studied pain medication usage among adults, how they used it to cope, and how it impacted their daily lives.

Clearly this topic and underlying issues run deep. It is not just about whether someone has a job today or not, even as economic conditions likely play a role somewhere along the way. As such it is more about human behavior and societal changes, which can be harder to understand and in cases like this, more uncomfortable to talk about. However, the increase in the number of deaths that are not due to an aging population has a big impact on the economic and demographic data that our office uses. More importantly, the considerable rise in the “deaths of despair” has a big impact on our lives and those of our friends, colleagues, and neighbors.

For more, see the Oregon Health Authority for detailed data on Oregon’s vital statistics including a life expectancy map by census tract. OHA also has a lot of resources regarding suicide prevention, substance use, using naloxone to save a life, county mental health services and more. The Governor’s Opioid Epidemic Task Force in recent years has been working on ways to improve treatment in addition to possible regulations and policies.

Posted by: Josh Lehner | May 23, 2019

Oregon Births and Deaths, Part 2

Part 1 looked at the natural increase in Oregon’s population, how it is expected to turn negative next decade and how half of Oregon counties already see deaths outnumber births. Today in Part 2 we will examine Oregon’s relatively stable, or stagnant, total number of births which is expected to continue in the decade ahead.

Birthrates increased nationwide from the 1970s through the 1990s. On the eve of the Great Recession, the U.S. had replacement rate fertility (2.1) and here in Oregon we nearly did as well (2.0). However, since then the birthrate has fallen considerably, particularly in Oregon and across the West. Initially, it was thought birthrates would rebound along with the economy. However, even as the economy has improved, not only have birthrates not picked up, they continue to fall further. Today, Oregon is a half a child below replacement rate (1.6 in 2017, data is not yet final for 2018), and the U.S. nearly so (1.7 or 1.8). While Oregon has one of the lowest birthrates nationwide, similar big picture trends are seen throughout the country.

Lyman Stone, an economist who writes about demographics and population, notes that such a decline is not yet at as pronounced as Russia’s decline in the post-Soviet era, but it is on par with birthrate declines seen in Canada, France, Japan, and Sweden. None of these countries have regained replacement rate fertility.

Now, the hard questions are why has this happened and why should we care?

Lets start with a couple reasons why this matters. Fewer children means fewer workers in the coming 20-60 years. This will result in slower economic growth. As discussed recently, demographics are already weighing on the economy quite a bit and will continue to do so in the decade ahead. Continued low birthrates will weigh on growth further into the middle of the century. Demographic imbalances may also make it more challenging to take care of older adults. From a labor perspective this includes staffing for long-term care, while from a fiscal perspective the increased challenges on Social Security.

As Lyman notes both on his blog and in the New York Times, there is another reason why we should care from a societal perspective. In comparing the ideal fertility rate from the General Social Survey with the total fertility rate that is actually observed, there is a widening gap. Women and men say they want 2.5-3 kids, but are only having 1.5-2 kids. This work shows there has always been a difference between ideal and achieved fertility, but that it is widening in the past decade. It is now reaching the differences seen back in the 1970s and 1980s, or when fertility rates began increasing again.

In separate research, the New York Times asked young adults why they are not having as many children and the answers were enlightening and also probably what you would expect. A lot of the top reasons given are financial in nature — childcare costs, student debt, housing affordability, etc. These issues are clearly in play here in Oregon where we have one of the highest childcare costs nationwide and among the worst housing affordability. However some reasons from the survey were clearly personal — wanting more leisure time or personal freedom, delaying marriage or not having a partner yet, etc. Overall, research points toward the rising age at which people marry being a key factor, as birthrates have not changed much after adjusting for marital status. As such, the delay in marriage is driving the delay in having children.

Another factor social scientists point to is gender equality. With rising educational attainment and employment opportunities, marriage and motherhood have become more of a choice. Complicating the picture further is the fact that women face an earnings penalty after having kids, and the U.S. has fewer policies supporting working families than many other developed countries. All of this may also contribute to the rise of stay-at-home moms in the past decade or so.

Finally, it must be noted that, at least initially, the decline in birthrates were in large part due to falling teen pregnancies. And yes, these declines began long before 16 and Pregnant and Teen Mom were on the airways. Overall, this is a great development from a social and human capital perspective. There is also some evidence that what we are seeing in annual birthrates is a bit misleading. Research from Pew shows that the by the time women are in their 40s, they have had the same number of children as the previous generation. This is sometimes called the tempo effect, that births are delayed and not foregone. That said, Lyman models a few scenarios including the tempo effect and birthrates by age or generational cohorts. He finds that the overall lower birthrate is here to stay for the foreseeable future, barring big changes in societal behavior and norms.

While we don’t have as good of data here in Oregon, we clearly see this shift in the age of the mother. The birthrate for first-time moms is rising substantially for 30- and 40-somethings, while it is declining for teens and 20-somethings.

What is striking to me when I look at the population forecast Kanhaiya in our office produces, is that Oregon will see fewer children in the future. This is not just a falling birthrate, but an outright decline in the total number of children in the state. In 2030, Oregon will have one million more residents than we did back in 2007, when we last had replacement rate fertility (almost), however the number of kids will be actually be lower. And this is in a state that sees strong net in-migration!

All told, fertility shapes many issues across the country from immigration to education, housing to labor supply. The U.S. and Oregon are expected to continue to see very low birthrates in the years to come. To the extent that these lower birthrates represent better economic opportunities for women and are more of a revealed preference, the declines are not worrisome at the personal level and should even be celebrated.

However, from a macro level, demographic imbalances can be problematic. As we work through the current demographic issues of Baby Boomer retirements, we are also sowing the seeds of the next imbalance in the coming decades.

Academic studies generally find that offering cash or tax incentives for parents produces modest and temporary boosts to birthrates, which tend to be more cultural in nature. As such, barring any substantial shifts in societal norms or larger flows of working-age international migrants, Oregon and the U.S. will likely need to adjust to shifting demographic trends in the decades ahead.

Stay tuned for Part 3 of the series when we will explore deaths a bit further.

Posted by: Josh Lehner | May 21, 2019

Oregon Births and Deaths, Part 1

Oregon’s ability to attract and retain working-age households is the key driver of our stronger economic growth compared to most other states. The influx of new residents provide young, skilled labor for Oregon firms looking to hire and expand. These new residents also increase demand for housing, schools, breweries, nail salons and the like, which generates further economic activity. However, the fact that Oregon is a magnet state does one other thing. It keeps Oregon’s population from declining. As the number of deaths increase and number of births stagnate, the natural increase in Oregon’s population will turn negative in a few years. This has never happened in Oregon, at least not in our modern history. But it will in the middle of next decade based on our office’s demographic outlook.

If we step back and look at Oregon’s population growth, it has largely matched expectations and even come in a bit higher than our forecast from a handful of years ago. However the composition of that growth is shifting somewhat more than expected. Births continue to come in below expectations, while deaths are rising faster than an aging population alone would suggest. As such, Oregon’s rate of natural increase has been shrinking faster than expected. Oregon is becoming more and more reliant upon net in-migration for population growth.

Of course these population and demographic trends vary across the state. Over the past couple of years, 16 of Oregon’s 36 counties have experienced strong natural increases in their populations. These are primarily the counties in the Willamette Valley, Central Oregon, and then in Northeastern Oregon. The larger, and faster-growing urban areas that attract working-age households do see births continuing to outnumber deaths. Additionally, counties with larger minority populations also tend to see better gains due to higher birthrates relative to the non-Hispanic white population.

Another 6 counties see the number of births and deaths effectively offset.

That means 14 of Oregon’s 36 counties are seeing sizable declines as deaths outnumber births. Now, only a few counties have seen their total population decline, meaning that the influx of new residents moving into the area is generally enough to offset changes or declines in the natural increase. That said, aging demographics will have a large impact on every county in the state as discussed previously.

Bottom Line: As the number of deaths rise and births stagnate, Oregon is increasingly reliant upon net in-migration for population growth. Given that migration is pro-cyclical, this will likely contribute to economic volatility moving forward. Additionally, the population outlook is the key driver of every long-term forecast our office does. As such, anything that puts migration at risk — housing affordability, natural disasters, etc — potentially has big implications for Oregon’s economy, and public sector budgets.

We will dig into births in Part 2 and examine one reason deaths are rising faster in Part 3. Stay tuned.

Posted by: Josh Lehner | May 15, 2019

Economic and Revenue Forecast, May 2019

This morning the Oregon Office of Economic Analysis released the latest quarterly economic and revenue forecast. For the full document, slides and forecast data please see our main website. Below is the forecast’s Executive Summary.

The economy is on firmer ground today following a rocky start to the year. The combination of softer economic data and concerns over potential policy mistakes raised the risk of recession. However as the data flow improves, and the Federal Reserve’s dovish pivot, recession fears have faded. That said the economy is slowing down following last year’s tax cut fueled growth. Economic gains over the upcoming 2019-21 biennium will be more in-line with underlying growth in the labor force and productivity. Encouragingly, the latter has shown signs of life recently due to the tighter labor market. The recent escalation in the trade war is a wildcard. It is too soon to know how disruptive it may be to global supply chains as developments are ongoing.

While the U.S. economy is just now beginning to slow, Oregon’s has for the past few years. Now, the state continues to see healthy rates of growth. However Oregon is no longer significantly outpacing the nation like it was a couple of years ago. Overall, this was not unexpected. So far this biennium, actual employment, personal income, and population in Oregon have closely tracked the forecast.

Looking forward, Oregon’s economic outlook calls for ongoing, but slower growth this year and next. The tighter labor market, somewhat fewer in-migrants, fading federal fiscal stimulus and past interest rate hikes all cool economic activity. That said, Oregon continues to hit the sweet spot. Growth is strong enough to keep up with a growing population but also deliver economic and income gains to Oregonians. This pattern is expected to continue until the next recession, whenever it comes.

While economic growth in Oregon is slowing down as expected, the same cannot be said for our General Fund tax revenues.  During the peak tax filing season, Oregon saw record collections of both personal and corporate income taxes. Both are up more than 50% relative to this time last year. Now, most other states that depend on income taxes have also experienced very big years. However, tax collections have come in far above what underlying economic gains could reasonably support.

Clearly, taxpayer responses to federal tax reform are playing a large role in these record collections. Law changes have broadened the tax base for some business income, and have given taxpayers the incentive to shift the timing of their payments.  With lower tax rates in 2018, filers tried to recognize as much income as possible during the tax year. How much liability remains to be realized in future years is an open question.

Projected 2017-19 Net General Fund resources are up $883 million from the May 2019 forecast.  Including Lottery revenues, net resources are up $908 million.  As a result, Oregon’s unique kicker law has been triggered for both personal and corporate taxes.  A record (in dollar terms) $1.4 billion personal kicker is projected for 2019-21, while corporate tax revenue of $616 million is projected to be dedicated to K-12 education spending.

Given Oregon’s economic and revenue forecast history, kicker payments of this size are a once a decade event. The median filer will receive a kicker credit of $338 next year, while the average filer will receive a credit of $691.  Filers in the top 1% of the income distribution will receive a credit of nearly $14,000.

Heading into the next biennium, uncertainty about the performance of the regional economy will become paramount.  Growth will certainly slow to a more sustainable rate in the coming years, but the path taken to get there is unknown.  Capacity constraints, an aging workforce, monetary policy drags and fading stimulus all put a lid on growth a couple of years down the road.  However, the exact timing and steepness of this deceleration is difficult to predict, leading to a wide range of possible revenue outcomes for the 2019-21 biennium. 

See our full website for all the forecast details. Our presentation slides for the forecast release to the Legislature are below.

Posted by: Josh Lehner | May 8, 2019

Labor Supply Update and Thoughts on the Outlook

As Oregon’s labor market continues to transition down to more sustainable rates of growth, our office and our advisors keep coming back to the question of where the labor will come from. Obviously there are two main sources: current residents who are not working today and new residents moving into Oregon. The real question is how much labor can we reasonably expect from either group as we enter into the eleventh year of the expansion? We’re releasing our latest forecast next week, so you’ll have to wait until then to know for sure. However this post will highlight the latest data and some of the conversations we have had recently with our advisory groups.

First, the share of prime working-age Oregonians with a job today is back to where it was prior to the Great Recession, and even a bit higher. This is tremendous economic news and one big reason Oregon’s job gains have outstripped the average state. That said, job growth among this age group in the past couple of years has essentially matched population gains, meaning the employment rate has held fairly steady. And this steady employment rate is a key driver in the slower statewide job gains in recent years. This largely reflects the fact that much of the slack is gone. There is no longer an army of unemployed Oregonians waiting around for a job. Firms must cast a wider net in recruitment and dig deeper into their resume stack to fill open positions. (Note that the Oregon data is based on a smaller sample size and can be noisy.)

Steady prime-age EPOP suggests job growth moving forward will be more closely tied to the underlying gains seen in the population. Now, there does remain some room for further improvements as the employment rates were higher back in 1999 and 2000, or the peak of the technology-led expansion. Regaining such employment rates would keep Oregon’s job growth stronger, for longer, and mark further economic improvements. However, even regaining the 2000 rates of employment would not likely alter our baseline forecast too much given the aging demographics, increasing retirements, slowing migration patterns and the like. That said, economically, we would love to see further gains in EPOP and as the expansion continues, we likely will to some degree.

Previously, our office dug into 3 potential pools of underutilized workers which should they return to the workforce in greater numbers, would push Oregon job growth rates higher. These groups include: teenagers, stay-at-home moms, and those with self-reported disabilities.

Second, population growth, and migration specifically, slows in a mature expansion. People follow the jobs. 60% of new Oregon residents say they moved here for a job or in search of work. So as job growth slows, so too will migration. This slowdown has been built into our office’s forecast for some time now. However the exact year-to-year changes can be noisy and hard to predict. Overall our office’s population forecast has been raised relative to a few years ago due to stronger-than-expected migration in 2016 and 2017. That said, population growth in 2018 was a noticeable step down relative to recent years. A sharper deceleration than expected. But what is very clear in the data is how widespread this slowdown was last year. (Note the following charts are based on data from our friends at Portland State’s Population Research Center, who provide the official state estimates between each decennial Census. The Census Bureau has its own set of Oregon estimates.)

Slower gains were seen across age groups. The exception being older cohorts for the most part which is about Baby Boomers aging from their 50s into their 60s and 70s, and not about retiree migration which is small. Also, the number of children in Oregon is largely holding steady or declining somewhat. As promised before, I will come back to the birthrate issue at some point in the near future.

The slower population growth was also seen across all regions of the state. Even Bend is slowing some.

Additionally, given that underlying working-age population growth is a key determinant in labor supply and the economic outlook, our office recently dug into expectations for county level growth in the 2020s.

Bottom Line: Job growth in Oregon has been slowing down to more sustainable rates in recent years and is expected to continue to do so. Eventually, once all of the slack is gone from the economy, job growth will match population gains. This has been the nature of our outlook for some time. The tricky part is figuring out how long and to what degree this transition takes place. There is still room to run for this economic expansion and the longer it lasts the more progress we should see. Our office will release a new forecast next Wednesday and this, being the May forecast in an odd year, will also set the revenue bar for the 2019-21 BN budget and form the basis of any future kicker calculations.

Posted by: Josh Lehner | May 2, 2019

Lifting the Hood on Oregon’s Transfer Payments

Over the past decade or two, transfer payments have become a larger source of personal income here in Oregon and across the country. Transfer payments are basically benefits paid for by the government for citizens who are generally either older (Social Security) or low-income (SNAP, Medicaid, Unemployment Insurance, etc). As such, this rise in transfer payments can be considered relatively benign — an aging population means more Social Security benefits paid out — or a signal of deeper economic problems — more residents in need of financial assistance. The fact that transfer payments account for a larger share of all income in Oregon than nationwide warrants a bit of further digging to see if we can spot some key issues.

In examining the types of transfer payments that the BEA tracks in their personal income data, it becomes quite clear what is driving Oregon’s higher share. Social Security and Medicaid are the key reasons for Oregon’s higher share of transfer payments. For Social Security, this largely reflects Oregon’s extra large Baby Boomer cohort. Our population 65 years and older is roughly 10% larger than nationwide, in proportion of our overall population. For Medicaid, the timing lines up with the Affordable Care Act and expansion of Medicaid. Prior to the ACA, medicaid composed about the same percentage of income in Oregon as it did nationwide. Following the Medicaid expansion, Oregon’s share has been higher. This gap reflects the fact that some states chose not to expand coverage to their residents.

What this also means is that other needs-based programs are not comprising a larger share of Oregon income than they are nationally. Programs like EITC, SNAP, SSI, TANF and WIC which are targeted to assist our low-income neighbors are not significantly larger here in Oregon than nationwide, at least when measuring the dollar values against the size of the local economy. Now, one item where Oregon does tend to see higher spending is from Unemployment Insurance. There is not much of a difference today given we are in a strong labor market, but during recessions, when Oregon loses more jobs and has a higher unemployment rate, we do pay out more unemployment benefits than the typical state. This gap widens in downturns and shrinks in expansions.

At the regional level, Oregon sees considerable variation in transfer payments. As shown below, they’re increasing in all parts of the state, but particularly so in our rural areas. This increase is in large part due to the slower economic gains experienced in recent decades — meaning transfer payments are a larger share given fewer wages and less business income — in addition to older demographics which include some younger workers moving to urban areas and some retiree in-migration. All of these work to increase the relative share of transfer payments above and beyond the general aging of the overall population. (See our office’s previous look at future labor force growth across the state for more on the demographic implications for the economy.)

Do note that one caveat here is that all of the above is basing transfer payments as a share of personal income. In Oregon, while our median household incomes are now on par with the US, we do still have lower per capita personal income due to the income gap at the high-end. If Oregon’s per capita personal income were higher, then our transfer payments would be a smaller share of income and below the US, even if our caseloads remained the same.

Bottom Line: Transfer payments are an increasing source of income across the country. While this increase is seen everywhere, it is particularly pronounced in our rural communities where transfer payments today account for 1 out of every 3 dollars of personal income. However, transfer payments are not “bad” sources of income, and play a key role in many of our lives. Transfer payments provide financial assistance to our neighbors in need, hopefully temporarily while they get back on their feet, and to ensure some standard of living in old age. As such, these programs and benefits allow us to put food on the table and cover medical expenses. Much of this growth over time is due to an aging population. The fact that retirements are ramping up and the working-age population is increasing slowly does mean this higher share of transfer payments is here to stay.

Posted by: Josh Lehner | April 25, 2019

Estate Tax Update

Here is a quick, updated look at estate taxes in Oregon. This is a follow-up, as promised, to our recent work looking at the income distribution and wealth. Recent years have brought record-breaking estate tax collections that have been significantly stronger than our office’s forecasts. Along with our friends at the Department of Revenue and Legislative Revenue Office, we have been trying to better understand the drivers of this growth and to what degree it is cyclical (asset market fluctuations), structural (aging demographics), and/or temporary (just a few estates accounting for tax collections).

Overall the number of estates impacted by the tax is relatively steady over the past decade, both in absolute numbers and as a share of all Oregon deaths. Now, of course not all those filing taxes in Oregon are Oregonians, as people living outside the state can and do own businesses and/or property. But it is helpful to gauge estate tax filings in relation to demographic trends. This shows that the estate tax is not affecting a larger share of the population today than it has in the past.

If it’s not more households being impacted, that means the underlying revenue growth is coming from cyclical and/or temporary factors. However it’s a bit fuzzy in trying to decompose these impacts. As seen below, there is no question that the increasing size of a few very large estates is driving much of the revenue growth. That said, we know that asset markets and valuations are rising and we are also seeing an increased concentration of wealth. This suggests future tax collections will remain strong, at least until the next recession when asset prices fall. Now, on the flipside, given the increased concentration among a handful of estates, tax collections may be more sporadic or irregular moving forward due to the unknown timing of when someone passes away.

Additionally, despite the concern that Oregon’s relatively low $1 million threshold will ensnare more Oregonians due to the hot housing market, so far this does not appear to be the case. Recent estimates made by LendingTree, Trulia, and our office’s examination of Census data all show that the share of housing units in Oregon valued at $1 million or greater is somewhere in the 2-3% range. This is more than double the share seen in the aftermath of the housing bust, but on par with or slightly higher than the share seen at the peak of the housing bubble. This highlights the fact that while most household’s primary residence is their source of wealth, this is not the case for high net worth households. They tend to hold a variety of assets including financial investments and business equity, in addition to their home. A hot housing market may contribute to their estate valuation, but by itself is not necessarily the driver of whether or not they are subject to Oregon’s estate tax.

Finally, we do know that tax planning is a key component for high net worth households and it does impact actual collections. Based on conversations with our advisors, we do take this into account in our forecast. Our outlook for estate tax collections remains strong, however it is not quite as strong as underlying demographics and asset markets suggest due to this tax planning capabilities.

Posted by: Josh Lehner | April 17, 2019

Future Economic Growth in Oregon

Economic growth over the long run is determined by the number of workers and how productive they are. The main reason Oregon outperforms the typical state over the entire business cycle is our stronger population growth. In particular, the influx of young, skilled households boosts our economic potential as our working-age population increases faster than in much of the country.

The big economic problem today is that demographics have turned into a major headwind. First, overall population growth is as slow as we have experienced in the past hundred years. It is not expected to pick up significantly either. Second, Baby Boomer retirements mean the working-age population is growing even slower and in many places around the country it is shrinking.

Our office’s measure of the potential labor force — taking demographics and adjusting based on participation rates by age — is expected to increase in the 2020s at half the rate Oregon experienced in the 1990s and one-third the rate as back in the 1970s when the Boomers entered into the workforce. Our economy will continue to grow and outstrip the typical state. However this growth will be significantly slower than we have become accustomed to. This has been the underlying character of our office’s forecasts for years as these trends directly translate into fewer job gains and slower growth in business sales and tax revenues.

Furthermore, these demographic headwinds have profound effects on nearly every economic measure we have, as is laid out in a great, new report from the Economic Innovation Group. (See Neil Irwin’s NYT article of Richard Florida’s post for good summaries.) The following quote from the report highlights the key points and issues:

The demographic decline facing large parts of the country are not benign. Demographic decline and population loss are not just symptoms of place-based economic decline, they are direct causes of it… Population loss reverberates through housing markets and municipal finances. Low-growth places have weaker labor markets and suffer from less economic dynamism.

Much of the report focuses on not just the demographic challenges, but how they vary across the nation. As the authors note, roughly half of U.S. counties lost population over the past decade and 80% lost prime working-age population (25-54 years old). Here in Oregon it is not quite as dire as “only” 3 of our 36 counties saw minor population losses during the past 10 years (Grant, Harney, Sherman). Relative to the rest of the country, these counties fall more in the middle of the distribution given the worse trends in the Northeast and Midwest. Oregon demographics as a whole are better off than much of the country. We are seeing stronger population gains and more widespread gains across the state. That said, Oregon is not immune and face the same big picture issues, albeit to a slightly less degree.

In terms of the outlook, demographics are going to get worse before they get better. Over the coming decade, according to the latest Portland State forecasts, Oregon’s counties will avoid significant population losses, although there will be some. That’s the good news. However 11 of our 36 counties will experience a shrinking potential labor force. In 2030, there will be fewer residents available for work and likely fewer workers overall in these counties. A few other counties will see no growth in their potential labor force. Overall, the number of residents available for work in every single county will increase at a slower rate than total population growth due to underlying demographics.

However, the outlook does not call for a downward spiral forever. Once we get past the bulge of upcoming retirements, the outlook improves. In particular, rural Oregon will see the biggest swings and improvements relative to recent years. This is something our office tried to highlight a few years ago.

When it comes to the demographic drag, what matters is aging from one’s 50s to one’s 70s. This is when people go from their peak-working and peak-earning years to nearly everyone being retired. Given demographic trends, including some young adults moving away to urban areas, rural communities are nearly all the way through the demographic drag. You can see this below where the growth rates all pick up considerably for the North Coast, Northeastern, and Southwestern Oregon. Even Southeastern Oregon, which faces the biggest demographic and population growth challenges, goes from losses to relative stability.

Conversely, while urban Oregon will still outpace rural areas, the state’s fastest-growing areas are set to slow down in the coming years. The inflow of new migrants will be slower as migration rates trend down and the demographic drag hits; the Gen Xers and Millennials who moved to Oregon in recent decades will get to retire someday, probably. As such, growth will taper in Central Oregon (Bend mostly) and the Portland region. Oregon’s other urban areas like the Rogue and Willamette Valleys will see relatively steady gains.

Demographics are a very powerful force. For now they are largely pointing in the wrong direction. The EIG report notes that by 2037 two-thirds of U.S. counties will have fewer prime working-age adults than they did in 1997. Here in Oregon we are not immune but are somewhat better off given migration flows. From 2000 to 2040, 14 Oregon counties will have a smaller prime working-age population and 11 of them will have a smaller potential labor force.

A slower-growing and in some places an outright smaller economy is and will be a tremendous challenge. It weighs on the workforce, housing markets, business sales, and public services. That said, if the latest population forecasts are reasonably accurate, the trends will be improving in a handful of years as we reach peak retirements.

Finally, the report dives into a lot more information (do read it) but one item it discusses in educational attainment. Our office looked at this in our Rural Oregon report as well. Now, one potentially complicating factor is the lack of an urban wage premium today for those without a college degree. It is possible that this will further alter migration and demographic patterns but it is still too early to tell if and how much.

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